Pay for it now...or (pay more) later...

We all make choices. Everyday. We make decisions today that affect our tomorrow. What will we choose? Will we choose to plan today for the unknown tomorrow? Or will we just wing it?

One day driving from Memphis to Nashville, my car broke down. The repair was more expensive than the car's value. A decision had to be made.

In this case, I basically had 3 choices:

1. Repair the vehicle (and hope it would last long enough to pay for itself)

2. Pay cash for a used car with my savings

3. Pay a bit more than I had in savings and take on a car note

Number 1 was not an option. The car was old, and was not worth the repair considering it may not last much longer after the repair was made. So now we are down to option 2 or 3.

After spending the weekend looking for a car I could afford with my savings - my dad and I realized that the car stock available was not that great. The used cars within my budget were very iffy, and I was ready for something a bit more dependable. Plus, the economy had increased gas prices causing the fuel efficient vehicles I wanted to increase in value and less were being sold. Another factor was against me: A hail storm had come through the city weeks prior, damaging many car lots. Here's some basic economics for you - when supply is low and demand is high - you will pay more for the product.

So, I upped my budget and landed on option 3.

Thankfully, I did have savings. This is something that I had ingrained in me as a child. This allowed me to put a significant down payment on the car. However, I now had a car note of $208 a month for 5 whole years. That's over $200 each month that was now tied up.

While I was thankful for a safe and trustworthy car, I did not like having this debt! Being the numbers person I am, I began tallying all the numbers. I ended up paying nearly $4000 more for my car than if I had paid cash. If I had been saving that $200 a month ($2400/year), over 3 short years, I could have paid for the car in full! This is the cost of debt. The cost of borrowing money from someone else in order to have something today. In this case, the cost was $4000 in interest.

I know what you're thinking, "What if you don't have the extra money to save? That's a lot of money after all."

True. We do have to take a look at individual circumstances. But consider this: my income hadn't changed much in the prior three years and now I was forced to PAY $208 a month to the loan company.

Where was that $208 going each month BEFORE my car note? If I'm honest... it was being spent mostly on WANTS - eating out, movies, clothes, and other miscellaneous items.

You see, I had made my choice. Yes, I had a plan. I budgeted to save, but I also chose to spend more rather than save more. After I processed this scenario with all the interest I was paying rather than earning - you bet I began to make some changes. It would have been lovely to have an extra $4000 in my pocket (or savings account) - perhaps to save toward the purchase of a home.

In other words, we can choose to make savings a priority now (while still allowing for a little fun), and earn some money in an interest-bearing savings account. Or we can choose to not plan ahead, get a loan and pay $4000 for borrowing someone else's money.

Okay. So, how do you know how much you should be saving? Good question.

Here are some tips to see what makes sense for you and your situation.

• Identify your goals and consider future needs.

• Pay yourself first; aka make savings a fixed expense before spending on wants. (After tithing, if you belong to a local church)

• Add your decided amount to your spending plan/budget

We never know all that may come our way so preparing for those rainy days is a must. In my situation, it was an unexpected car repair and economic factors outside of my control.

Future posts on spending plans and setting smart financial goals are to come.

In the meantime, if you would like to dig in to adjusting your current spending and savings habits simply click the link below to for a free consultation: (link will take you to my calendly site)

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